ExpertEasy2 marksMultiple Choice
ACCA · Question 04 · IAS 38 Intangible Assets
Section A
BioGene is a biotechnology firm developing a new drought-resistant seed. During the year ended 31 December 20X6, BioGene incurred the following costs:
- $300,000 on initial laboratory research to identify potential genetic markers.
- $500,000 on testing the chosen seed prototype in controlled greenhouse environments (technical feasibility was established on the date this phase began, and BioGene has the resources and intent to complete and sell the seeds).
- $100,000 on training sales staff to market the new seed.
What total amount should BioGene capitalize as an intangible asset under IAS 38?
Section A
BioGene is a biotechnology firm developing a new drought-resistant seed. During the year ended 31 December 20X6, BioGene incurred the following costs:
- $300,000 on initial laboratory research to identify potential genetic markers.
- $500,000 on testing the chosen seed prototype in controlled greenhouse environments (technical feasibility was established on the date this phase began, and BioGene has the resources and intent to complete and sell the seeds).
- $100,000 on training sales staff to market the new seed.
What total amount should BioGene capitalize as an intangible asset under IAS 38?
Answer options:
A.
$300,000
B.
$500,000
C.
$800,000
D.
$900,000
How to approach this question
Apply the PIRATE criteria from IAS 38 for development costs. Separate research costs (always expensed) from development costs. Exclude administrative or selling/training costs.
Full Answer
B.$500,000✓ Correct
Under IAS 38 Intangible Assets:
- Research costs ($300,000) must be expensed to profit or loss as incurred.
- Development costs ($500,000) must be capitalized because technical feasibility and other criteria (PIRATE) have been met.
- Training costs ($100,000) are explicitly excluded from capitalization under IAS 38 and must be expensed.
Common mistakes
Capitalizing training costs or failing to distinguish between the research phase and the development phase.
Practice the full ACCA FR — Financial Reporting Practice Exam 5
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